Hargreaves Lansdown is leading the FTSE 100 fallers in the wake of Friday’s surprise announcement that its finance director was stepping down.
Tracey Taylor, who has held the position since 2008, will be replaced immediately on an interim basis by Simon Cleveland, from accountants Deloitte, but remain with Hargreaves until the end of June to ensure a smooth transition and work on other projects.
But with analysts uncertain about the move, the investment firm’s shares are currently down 47p or nearly 5% at 944p.
Analysts at Liberum issued a sell note, saying:
Although she is due to stay with the group until the 30 June 2015, this strikes us as a very strange announcement.
We believe the first half 2015 results, scheduled to be released on the 4 February 215, will point to a slow start to the year. Declining interest income is likely to weigh heavy on performance as too will new business levels. The first quarter 2015 statement cited a 23% year on year decline in net flows. The second most important revenue stream, stockbroking commissions, could also be under pressure. In recent weeks, the likes of Rathbones, Brewin Dolphin and Close Brothers have all reported a slowdown in this activity.
We believe Hargreaves is a great company but also conclude that it has reached a stage in its maturity where it will only be able to deliver around 10% earnings per share growth over the medium-term. To that end we believe a 2014 PE of 28 times, falling to 25.5 times in 2015 is too rich, particularly when one considers this is a 65% premium to the asset and wealth management sector. We re-iterate our sell recommendation.
Shore Capital kept its hold rating, with analyst Paul McGinnis saying:
While Ms Taylor’s departure appears amicable (she had been with the group for 15 years and chief financial officer since 2008), the suddenness of her exit from the role is the main surprise to us, particularly as she will remain with the company for a further six months, thereby necessitating the appointment of an interim chief financial officer.
We remain impressed by the Hargreaves Lansdown business model but feel the valuation remains too far above our 900p assessment of fair value to be more positive of the investment case.
